June 27 (Bloomberg) -- An increasingly vocal chorus of
current and former U.S. regulators says the biggest banks still
have not provided adequate plans to safely wind down in
bankruptcy and may need to be restructured to reduce the risk
they pose to the financial system.

Jim Wigand, a Federal Deposit Insurance Corp. official
responsible for planning for the failures of big banks such as
JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup
Inc., said none have yet been able to draw up bankruptcy plans
that wouldn’t threaten to detonate the financial system. The
plans, known as “living wills,” were a core demand of the 2010
Dodd-Frank Act overhaul of financial oversight, and it gave
regulators the authority require systemically risky banks to
restructure if their plans aren’t “credible.”

Whether a global financial giant is able to go through an
orderly bankruptcy using a living will is still “an open
question,” Wigand said in an interview.

The 11 largest banks filed the first draft of their living
wills last year. The banks, which included Bank of America
Corp., Barclays Plc and Deutsche Bank AG, are required to file
new versions of their living wills on Oct. 1. Another tier of
banks with less in U.S. nonbank assets must file their first
plans by July 1.

Banking experts and some regulators speak openly about the
impossibility of putting a bank such as JPMorgan -- commonly
perceived as being “too big to fail” -- into bankruptcy court
without destabilizing the rest of the financial system. Some
advocate changes to the banks, and others changes to the
bankruptcy code to make it easier to resolve large institutions.

For their part, the banks say they are working hard to make
the Dodd-Frank resolution process work.

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Compliance Policy

BOE Orders Review of Risk to Banks From Rate Increases

The Bank of England said lenders are vulnerable to an
abrupt increase in long-term interest rates as it warned
confidence in the financial system remains fragile.

The central bank yesterday ordered a review of banks’
exposure to interest-rate risk, which it said is not properly
understood. The review will be carried out by the Prudential
Regulation Authority, which will report back in September.

Global central banks have cut interest rates to record lows
and pumped money into their economies to boost growth. Federal
Reserve Chairman Ben S. Bernanke said this month that the U.S.
central bank may begin tapering its stimulus program later this
year, prompting declines in global stock markets as investors
speculated the Fed may raise rates faster than they assumed.

The extended period of low interest rates may have led some
financial-market participants to become exposed to big increases
in interest rates, according to the report. Some investors may
also be demanding insufficient compensation for bearing risk. In
addition, U.K. households remain “highly indebted” and there
is a need to assess the “vulnerability of borrowers,” the
central bank said.

In its recommendations published yesterday, the BOE’s
Financial Policy Committee said that liquid asset buffers held
by U.K. lenders to protect against a credit crunch are above
minimum requirements and they have space to reduce holdings by
about 70 billion pounds. The Basel Committee on Banking
Supervision recommends a liquidity coverage ratio of 100 percent
by January 2018 and U.K. banks already meet this, the BOE said.

The central bank, which introduced a program last year to
boost lending, said that while the impact of looser liquidity
requirements on credit is uncertain, the committee intends to
give the banking system more flexibility to lend.

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Libor to Oil Targeted by EU Deal on Tougher Market-Abuse Law

Bankers and traders found guilty of rigging benchmark rates
from Libor to oil would face tougher fines and other sanctions
in the future under a deal reached by the European Union to
overhaul its penalties for market abuse.

Nations clinched a draft accord with European Parliament
lawmakers to toughen sanctions against market abuse. The accord
sets out minimum penalties available to regulators when they
punish perpetrators. As well as rate rigging, the draft law
covers other kinds of market manipulation and insider trading.

Arlene McCarthy, the parliament’s lead lawmaker on the
proposals, said in an e-mailed statement on the deal that the
law “provides for tough minimum sanctions and a permanent ban
from working in the industry.”

Michel Barnier, the EU’s financial services commissioner,
said the new rules would respond “recent scandals on interest
rate, commodity and currency benchmarks.”

He said investors will “be reassured that manipulation of
benchmarks is prohibited and subject to strict sanctions.”

Financial Stability Board Chairman Mark Carney, the next
Bank of England governor, said this week that global regulators
will set up a task force with banks in a bid to repair or
replace tarnished benchmarks in the wake of the rate-rigging
scandals.

U.S. Senators Offer Bill Eliminating Fannie Mae, Freddie Mac

A bipartisan group of senators has proposed replacing U.S.-
owned mortgage financiers Fannie Mae and Freddie Mac with a
newly created government reinsurer.

A bill to be offered by Senators Bob Corker, a Tennessee
Republican, and Mark Warner, a Virginia Democrat, reflects a
prevailing view among lawmakers that the two government-sponsored enterprises should cease to exist while a federal role
in backing mortgage lending should remain.

The senators have revised their proposal from an earlier
version, reducing the losses that lenders would take on bad
mortgages during a financial crisis, according to a 154-page
copy of the final bill.

Under the bill, Washington-based Fannie Mae and McLean,
Virginia-based Freddie Mac, which package mortgages into
securities on which they guarantee 100 percent payment of
principal and interest, would be liquidated within five years.

The proposal could restart a stalled debate over the future
of the U.S. mortgage-finance system. Congress hadn’t previously
proposed a measure to eliminate Fannie and Freddie, nor had
President Barack Obama’s administration done so.

The bill was praised by banking and mortgage trade group
representatives.

For more, click here.

Taiwan Cuts Capital Gains Tax on Share Sales, Ends Threshold

Taiwan lawmakers voted to roll back provisions of a capital
gains tax on certain stock sales and removed an index price
threshold that depressed shares and dragged down market trading
volume.

The tax on capital gains from transactions of more than
NT$1 billion was reduced to 0.1 percent from 2.25 percent under
the original law. Lawmakers also removed an 8,500-point close
threshold for the Taiex index before the tax could go into
effect. Legislative Yuan President Wang Jin-pyng announced the
passage of revisions in a special legislative session June 25.

Before passing the levy last year, Taiwan had exempted
securities transactions from capital-gains taxes since 1990,
according to the stock exchange’s website.

They spoke today after seven hours of emergency
negotiations in Brussels.

For the video, click here.

European Union finance ministers struggled for consensus
this week as they took up an Irish-drafted compromise proposal
for assigning losses at failing banks, extending a deadlock that
doomed talks leading up to today.

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Global Banks Will Screen for Terrorism Links Under Basel Plan

Global banks will have to vet all customers for terrorism
links as part of a crackdown on money laundering and criminal
finance.

Terrorist screening “should be carried out irrespective of
the risk profile attributed to the customer,” the Basel
Committee on Banking Supervision said in proposals published
today. Lenders should immediately freeze any assets from clients
that fail the test, according to the guidelines.

Regulators, including those in the U.S. and U.K., have
cracked down on money laundering after the 2008 financial
crisis.

The decision “to enter into or pursue business
relationships with higher-risk customers should entail enhanced
due diligence measures, such as approval to enter into or
continue such relationships, being taken by senior management,”
said the committee, which is based in Basel, Switzerland and
comprised of global regulators and central bankers.

Compliance Action

UBS Unit Fined 10 Million Euros by French Regulator on Controls

UBS AG’s French unit was fined 10 million euros ($13.1
million) by the nation’s banking regulator and reprimanded for a
lack of controls that may have enabled some clients in France to
dodge taxes.

The unit of Switzerland’s largest bank was alerted to
“grave suspicions” by the fall of 2007 on its sales force’s
possible involvement in illicit marketing and the covering up of
tax fraud, and waited more than 18 months before setting up the
necessary controls, the regulator said in a statement yesterday.

The delay was described as an “especially grievous
failure” by France’s banking regulator in a report dated
yesterday about UBS.

The UBS unit also failed to control its sales force’s
potential access to computer files shared with the parent
company that could have been used to identify prospective
clients for accounts outside France, the regulator said
yesterday.

“We disagree with many of the disciplinary commission’s
conclusions,” Zurich-based UBS said in an e-mailed statement
yesterday, adding that it will consider whether to appeal the
decision. “UBS does not tolerate any activities intended to
help its clients circumvent their tax obligations.”

UBS and its French unit are under a formal investigation by
Paris prosecutors as France steps up efforts to combat tax
evasion. French tax investigators last year searched UBS offices
in cities including Strasbourg, Lyon and Paris. Three
individuals were also put under formal investigation last year.

“This is an issue from the past and we are pleased to note
that the disciplinary commission acknowledges in its report that
UBS France SA has taken appropriate steps to strengthen its
compliance framework since 2009,” UBS said.

Pope Francis Names New Commission to Oversee Vatican Bank

Pope Francis has named a new commission to oversee the
operations of the Vatican Bank, in response to calls for the
Church’s financial arm to improve efforts to fight money
laundering.

The commission will be able to request information about
the operations of the bank, formally named the Institute for
Works of Religion, or IOR, and will present its findings
directly to the pope, the Vatican said on its website.

The decision comes after Moneyval, the Council of Europe’s
monitoring body for money laundering and terrorism financing,
told the Vatican in July of last year that it needed to improve
supervision of transactions and stressed the need for
independent supervision of the IOR.

The institution is aiming to overcome three decades of
suspicion about its dealings. The Vatican Bank oversees about
7.1 billion euros in assets, largely in bonds and cash.

Russia Tightening State Dividend Rules Before Asset Sales

Russia is making it harder for state companies to sidestep
dividend rules as it seeks to boost government revenue and sell
assets to bolster the budget.

From next year, the prime minister’s approval will be
needed to exempt companies from a payout equivalent to at least
25 percent of profit under international accounting methods,
Igor Shuvalov, first deputy prime minister, said in an interview
June 21 in St. Petersburg.

Bigger dividends would support companies’ market value as
Russia seeks to raise 427 billion rubles ($13 billion) from
state asset sales this year, helping the budget after President
Vladimir Putin increased spending during his election campaign
last year.

Russia required state-backed companies pay at least 25
percent of net income as dividends in November, without
specifying whether the payouts should be based on Russian or
international accounting rules. The board of natural-gas export
monopoly OAO Gazprom recommended a 2012 payout 33 percent less
than the previous year as profit slumped. The dividend is equal
to 25 percent of net income based on domestic accounting rules
and 12 percent under international standards.

Suncorp Group to Improve Compliance Systems, ASIC Says

Suncorp Group agreed to implement enhancements to its
existing program of compliance system improvement across its
life and general insurance businesses, the Australian Securities
& Investments Commission said in a statement on website.

This announcement followed an ASIC-requested independent
review of those compliance systems. The regulator sought the
review following its own examination of “significant number of
breaches” reported by the group, according to the statement.

In the period from June 2010 to date, over 849,000
customers have been affected by reported breaches, requiring
refunds of about A$23 million, ASIC said in the statement.

“Suncorp acted appropriately in reporting the breaches to
ASIC as it identified them, and in acting to remediate affected
customers,” said ASIC Deputy Chairman Peter Kell.

Interviews/Panels

Draghi Says ECB Ready to Act, Urges Investment Over Tax

European Central Bank President Mario Draghi spoke to
lawmakers in the French National Assembly in Paris about
monetary policy, the euro area’s economy and governments’ fiscal
policies. During his remarks, Draghi touched upon credit flows
and taxation and banking supervision.

For the video, click here.

Comings and Goings

Brevan Howard Trader Cecere Resigns From London Hedge-Fund Firm

Christopher Cecere, who Japanese regulators accused of
trying to manipulate interest rates when he worked at Citigroup
Inc., has resigned from hedge-fund firm Brevan Howard Asset
Management LLP.

Cecere, an American who worked in Brevan Howard’s Geneva
office, stepped down last week for “personal reasons,” said
Max Hilton, a spokesman for the London-based firm at Peregrine
Communications. Cecere worked for Citigroup in Tokyo as head of
Group of 10 trading and sales for Asia before leaving the New
York-based bank in 2010.

Japan’s Financial Services Agency said in a December 2010
administrative case that Cecere and another trader asked bankers
to alter data they submitted while setting a benchmark Japanese
lending rate. The regulator penalized Citigroup without taking
action against the employees. Cecere, in a February 2012
interview, denied wrongdoing, saying regulators never questioned
him and that he left Citigroup in good standing.

Cecere didn’t respond to a message left on his mobile phone
or an e-mail today. His resignation from Brevan Howard was
reported earlier by the Wall Street Journal.

Brevan Howard, with $40.1 billion of assets under
management, is Europe’s second-biggest hedge-fund firm after Man
Group Plc.